Sterilization products maker STERIS (NYSE:STE) reported that shipments of its System 1E sterilizer continue to fall below the company’s earlier projections.
The Mentor, Ohio-based company now projects that it’ll ship 4,000 System 1E units in its fiscal 2012, which is scheduled to end on March 31, company executives said Tuesday in a conference call to discuss STERIS’ third-quarter earnings. In November, STERIS projected that it would ship 5,000 units, and as recently as August, said the number could be as high as 8,000.
The System 1E is a liquid chemical sterilizing system used by hospitals, surgical centers and other healthcare facilities to sterilize heat-sensitive medical instruments. It’s a replacement device for the System 1.
The U.S. Food and Drug Administration is requiring customers transition away from the System 1 because it found in December 2009 that STERIS had made so many changes to the device over the years that the agency hadn’t cleared the modified version of the device. STERIS began shipping the System 1E in December 2010.
In December 2011, the FDA extended by six months until August 2012 a deadline for STERIS to support customers transitioning from the System 1. STERIS said at the time that the extension could result in shipments of as many as 1,000 System 1E units shifting from fiscal 2012 to fiscal 2013, as the latest shipment projections show.
Hurting sales of the System 1E is the lengthy regulatory approval process for one of the device’s accessory parts, called a biological indicator. That part isn’t necessary to operate the System 1E, though many customers prefer to use it. The part indicates the presence of biological materials on equipment.
CEO Walt Rosebrough said Tuesday that STERIS is still awaiting FDA clearance of the accessory part.
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STERIS also faced another issue with the System 1E during the quarter, related to water quality and temperature at customers’ facilities. That’s resulted in maintenance “field corrections” the company has had to make on the device. STERIS is seeking regulatory approval for a software modification that could ease the water-related problems, Rosebrough said.
Considering the ongoing System 1E transition issues, plus a restructuring of the company’s operations in the U.S. and Europe, STERIS turned in a solid quarter financially. Revenue grew 8 percent to $355 million, with growth across its three lines of business, compared with the year-ago quarter. Earnings grew 54 percent to 58 cents per diluted share, though that came in below Wall Street’s expectation of 61 cents per share.
As it finishes up its fiscal year, things don’t appear to be getting any easier for STERIS. It downwardly revised its full-year outlook for 2012, and now expects revenue growth at 6 percent and earnings per diluted share between $2.13 and $2.20.
In November, the company projected full-year earnings per diluted share between $2.25 and $2.45.
